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Archive for the ‘disaster’ Category

IRS Extends Deadlines for Irma Victims

Posted by taxguru on September 12, 2017

All last week, as we all prepared for the oncoming wrath of Hurricane Irma, I was confident that everyone in Florida could expect the same kind of official extensions of time from IRS to file tax returns that had their first extension expiring in the next few months. 

While this was mainly 2016 1040s, even more pressing are the extensions for pass-through entities, such as LLCs, Partnerships, Trusts and S-Corps, which have extended deadlines of September 15, 2017 for their 2016 tax returns.  In the “old days” filing any of these tax returns late wasn’t a big deal because late penalties were only based on the amount of taxes due, and as pass-through entities, they had no taxes and thus no late penalties.  However this was changed a number of years ago and nowadays IRS is very aggressive in assessing late filing penalties of hundreds of dollars per month per K-1.  These frequently grow into thousands of dollars.

Since Sept 15 is fast approaching, for the past few days, I have been checking the IRS news page for an announcement similar to the one they had for Hurricane Harvey, giving all those affected by Irma more time to file their 2016 tax returns.  Until just a short while ago, the only Irma affected territory mentioned as having filing relief were parts of the U.S. Virgin Islands.

IRS has just released this news release, announcing the expansion of the list of areas that have been granted official deadline extensions due to Hurricane Irma disruptions.

As of right now (2:50 pm on 9/12/17) The IRS’s list of affected Florida areas only includes 16 counties.  Since the evacuation order, preparation and the actual storm included all 67 counties here in Florida, IRS will need to expand that list.  According to the IRS description, it’s a function of what they are told by FEMA.  While not all 67 counties were hit as hard as some others, most were affected by the storm.  Even people who didn’t have any actual storm damage, but heeded the Governor’s pleas to get the hell out of Florida, are going to need a lot of time to get back to their normal lives after returning to their homes.  

I can only assume that the IRS’s official list of affected Florida counties will grow over the next few days or weeks.  Rather than list 60 to 65 county names, they may just take the simpler route and include the entire State of Florida.

[Update 9/14/2017] – I noticed a few more Florida counties being added yesterday to the IRS’s list.  As of just before Noon today, their list of affected counties is up to 37, including Citrus, where we are located.  As more hurricane damage is discovered and reported up the chain of command (FEMA, et al), this list will continue to grow.

[Update 9/15/2017] – The list of affected Florida counties is now up to 46.  Just 21 more to include the entire state.

[Update 9/16/2017] – The IRS list of affected Florida counties has now been changed to “This represents all 67 counties of Florida.”

Posted in disaster, extensions, IRS | Comments Off on IRS Extends Deadlines for Irma Victims

Some Hurricane Harvey Tax Breaks

Posted by taxguru on August 29, 2017

There are a few silver linings to the still ongoing disaster in the Houston area as related to income taxes.

Filing Delay
As is always the case with huge unexpected disruptive events, IRS has officially extended tax filing and payment deadlines for people and businesses who are in the affected areas.  In this recent press release, IRS has extended the tax return filing and tax payment deadlines until January 31, 2018 for those who had tax returns due or extensions expiring in September and October 2017.  This includes millions of people who filed extensions for their 2016 1040s. 

IRS Gives Tax Relief to Victims of Hurricane Harvey; Parts of Texas Now Eligible; Extension Filers Have Until Jan. 31 to File

Deducting Unreimbursed Casualty Losses
Not mentioned in this IRS announcement is the fact that victims of Hurricane Harvey also have a choice about when to deduct their losses from this disaster.  Presidentially Declared Disaster Areas (PDDA) have a special tax break that “lesser” disasters don’t.  

Trump declares Hurricane Harvey federal disaster in Texas

Normal tax policy is to declare income received and expenses paid on the tax returns for that particular year.  If there were a fire or a small neighborhood flood in August 2017, those who were affected would have to wait to deduct their unreimbursed loses on their 2017 tax returns, which they would be filing with IRS in 2018.

In order to allow PDDA affected taxpayers to recoup some of their losses sooner, via tax reductions, they have the option to claim the casualty loss deduction on the normal year’s tax return (2017 for Harvey) or on the previous year’s return (2016 for Harvey).  You can see more details on this on the IRS website.

Tax Relief: Presidentially Declared Disaster Areas

Deciding on which tax return to claim the PDDA loss is, like many tax planning choices, based on when it will save you the most money.  As of today (8/29/17), we are only aware of one of our clients who has been personally hit by Hurricane Harvey, with an early estimated loss of around a million dollars.  We will most definitely be discussing the feasibility of deducting this loss on his 2016 1040, which also happened to be a year in which he had to report several millions of capital gains. 

Having spent several years in California, I do have quite a bit of experience in working with this issue with such disasters as earthquakes, as well as how to properly document and claim the losses on tax returns to avoid any IRS questions.  This includes attaching photographs of the home, before the disaster and after, as well as copies of contractor invoices for reconstruction costs.  The larger the deduction, the more documentation you need to attach to your tax return.  You don’t want to have to suffer through a disaster that’s often much worse than a hurricane, an IRS Audit.  

You can download a handy PDF reference on deducting casualty and theft losses here.  Courtesy of my favorite tax reference source, TheTaxBook.

Posted in casualty, disaster | Comments Off on Some Hurricane Harvey Tax Breaks